An European Union advisory group has sent out a warning on crypto asset risks to investor protection and market integrity Photo credit: Getty

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The European Securities and Markets Authority (ESMA) has announced it is concerned about risks crypto assets pose to investor protection and market integrity.

The most significant risks are fraud, cyber-attacks, money laundering, and market manipulation, the European Union advisory group said in a report last week.

ESMA warned the liquidity for many crypto assets typically is shallow and crypto investors may have limited possibilities to liquidate their holdings.

“There have also been widespread reports and concerns around fraudulent Initial Coin Offerings whereby crypto-assets either do not exist or issuer/developers disappear after the ICO. These could represent up to 80 percent of ICOs according to some sources,” the EU advisory group added.

“These issues are not unique to crypto assets trading platforms they may be exacerbated in the case of crypto-assets because of their high price volatility and often low liquidity,” ESMA explained.

While some supporters of crypto assets claim one of crypto’s advantages is the underlying Distributed Ledger Technology is very protected, the report noted cases have been reported of ICO issuers diverting contributions of investors from supposedly secured DLT accounts or smart contracts.

In its study, ESMA called for an EU-wide regulatory approach to create a level playing field for crypto assets and their developers across nations on the continent.

Turning to the potential benefits of crypto assets, the advisory group said they could provide an alternative funding source for blockchain start-ups and other innovative businesses that would find it difficult or costly to raise capital through traditional funding channels.

In addition, ICOs could give smaller investors attractive, though risky, opportunities to invest in start ups at their early stages.

There are more than 2,000 crypto assets outstanding, according to the report.